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Centrality and Pricing in Spatially Differentiated Markets: The Case of Gasoline

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Author Info

  • Matthias Firgo

    (WIFO)

  • Dieter Pennerstorfer

    (WIFO)

  • Christoph Weiss

Abstract

This paper highlights the importance of "centrality" for pricing. Firms characterised by a more central position in a spatial network are more powerful in terms of having a stronger impact on their competitors' prices and on equilibrium prices. These propositions are derived from a simple theoretical model and tested empirically for the retail gasoline market in Vienna (Austria). We compute different measures of network centrality by using information on the locations of gasoline stations in the road network. Results from a spatial autoregressive model confirm that the strategic interaction in pricing between competitors is significantly related to their degree of centrality.

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Bibliographic Info

Paper provided by WIFO in its series WIFO Working Papers with number 432.

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Length: 37 pages
Date of creation: 28 Aug 2012
Date of revision:
Handle: RePEc:wfo:wpaper:y:2012:i:432

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Keywords: Network centrality; Spatial differentiation; Gasoline prices;

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References

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  1. Lewis, Matt & Noel, Michael, 2009. "The Speed of Gasoline Price Response in Markets With and Without Edgeworth Cycles," University of California at San Diego, Economics Working Paper Series qt8j36j1s1, Department of Economics, UC San Diego.
  2. Braid, Ralph M., 1989. "Retail competition along intersecting roadways," Regional Science and Urban Economics, Elsevier, vol. 19(1), pages 107-112, February.
  3. Paul Madden & Mario Pezzino, 2007. "Oligopoly on a Salop circle with centre," The School of Economics Discussion Paper Series 0707, Economics, The University of Manchester.
  4. Justine S. Hastings, 2004. "Vertical Relationships and Competition in Retail Gasoline Markets: Empirical Evidence from Contract Changes in Southern California," American Economic Review, American Economic Association, vol. 94(1), pages 317-328, March.
  5. Matthias Firgo & Dieter Pennerstorfer & Christoph Weiss, 2012. "Centrality and Pricing in Spatially Differentiated Markets: The Case of Gasoline," WIFO Working Papers 432, WIFO.
  6. Michael H. Riordan & Yongmin Chen, 2005. "Price and Variety in the Spokes Model," Discussion Papers 0405-20, Columbia University, Department of Economics.
  7. Bouckaert, J., 1995. "Momopolistic Competition with a Mail Order Business," Papers 9562, Tilburg - Center for Economic Research.
  8. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  9. Lance J. Bachmeier & James M. Griffin, 2003. "New Evidence on Asymmetric Gasoline Price Responses," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 772-776, August.
  10. Dieter Pennerstorfer, 2009. "Spatial price competition in retail gasoline markets: evidence from Austria," The Annals of Regional Science, Springer, vol. 43(1), pages 133-158, March.
  11. Sridhar Balasubramanian, 1998. "Mail versus Mall: A Strategic Analysis of Competition between Direct Marketers and Conventional Retailers," Marketing Science, INFORMS, vol. 17(3), pages 181-195.
  12. Benjamin Atkinson & Andrew Eckert & Douglas S. West, 2009. "Price Matching And The Domino Effect In A Retail Gasoline Market," Economic Inquiry, Western Economic Association International, vol. 47(3), pages 568-588, 07.
  13. Janet S. Netz & Beck A. Taylor, 2002. "Maximum Or Minimum Differentiation? Location Patterns Of Retail Outlets," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 162-175, February.
  14. Matthew Lewis, 2008. "PRICE DISPERSION AND COMPETITION WITH DIFFERENTIATED SELLERS -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 654-678, 09.
  15. G�ran Therborn & K.C. Ho, 2009. "Introduction," City, Taylor & Francis Journals, vol. 13(1), pages 53-62, March.
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Cited by:
  1. Adriana Nikolic & Christoph Weiss, 2014. "Spatial interactions in location decisions: Empirical evidence from a Bayesian spatial probit model," Department of Economics Working Papers wuwp177, Vienna University of Economics, Department of Economics.
  2. Matthias Firgo & Dieter Pennerstorfer & Christoph Weiss, 2012. "Centrality and Pricing in Spatially Differentiated Markets: The Case of Gasoline," WIFO Working Papers 432, WIFO.
  3. Dieter Pennerstorfer, 2014. "Price and Quality Competition in Spatial Markets. The Case of Camping Sites," WIFO Working Papers 466, WIFO.

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